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Tax time: Canadian Strategies For Saving In 2002

Written by Posted On Tuesday, 16 April 2002 00:00

You know that it's not what you make but what you keep that really counts, however, are you doing enough to ensure that the Canada Customs and Revenue Agency (CCRA) collects as little of your money as possible each year on April 30?

One of the best strategies for legitimately reducing the tax you pay is adopting the belief that the only good expense is a tax deductible one. Your home, responsible directly and indirectly for many of your expenses, is at the heart of good strategies for increasing what you keep.

  • Home buyers who save their down payment using an Registered Retirement Savings Plan (RRSP) can gain on the resulting tax deduction each year as well as on the tax-deferred investment environment. The The Home Buyers' Plan allows up to $20,000 per person to be borrowed from the RRSP to build or buy a home without losing RRSP capacity or having to include the withdrawal amount as taxable income.

  • Home-based businesses turn heating expenses and other costs into deductible expenses. This business does not have to make you rich and famous just have a reasonable expectation of making profit. You may want to start out with a part-time or seasonal venture until you find the right business. Losses (that's more expenses than income) can be carried forward until the money rolls in. Allowable expenses include everything you reasonably spend to make money. CCRA's test of "reasonableness" includes computers, office equipment, stationery, word processing services, courier charges, online services and most goods and services relevant to your particular business. If your home office occupies 35 per cent of your home, you may be able to deduct 35 per cent of the following home maintenance expenses: mortgage interest, home insurance, heating, property taxes, gardening costs, repairs and other maintenance costs.

  • Renting out part of your home can bring the added benefits of companionship and someone to help maintain the property. Improvements to the rooms you rent out are deductible expenses so you may have the pleasure of improving your home and gaining a deduction at the same time. You'll still need a home office to run this business venture so you have a wide range of benefits to draw on.

  • Putting the annual maximum into your RRSP can generate a sizable tax rebate which may be useful for paying down your mortgage. Interest on the money you borrow to put into your RRSP is not tax deductible unless you borrow to buy investments to add to your RRSP. This loan could be in the form of a mortgage or line of credit against your home.

    While you're preparing your 2001 return, take time to see which deductions or credits you could qualify for with minor modifications to your lifestyle or business approach in 2002. If an accountant or financial advisor completes your return, that individual should advise you on keeping as much of your money as possible, but don't count on them to volunteer this information. Ask a lot of questions. Beware of financial advisors who offer suggestions based on your chances of getting away with something. CCRA personnel will explain how to do things properly, but insist on a specific written or online reference so you can make sure all is as described.

    For your information, here's how deductions and credits work:

  • If an expense is treated as a tax deduction, taxable income is reduced by the amount of the expense. Deductions such as RRSPs favour those in higher tax brackets. Each deduction has its own qualification criteria and these often change from year to year.

  • Tax credits, like medical expenses and charitable donations, reduce the amount of tax payable. Credits vary from province to province. For instance, Ontario offers property, sales and child care tax credits while Manitoba has cost of living, property and learning tax credits. Refundable tax credits have value even if no tax is payable. Credits reduce tax, perhaps to zero. If credits exceed the tax payable, the difference is given as a tax refund. Non-refundable tax credits have no value when no tax is payable. Excess non-refundable credits are not given as tax refunds.

  • Capital gains is the profit you make on the sale of property, either personal like stocks and bonds or real property like your cottage or investment real estate. The costs of acquiring and disposing of property are deducted from the profit and 50 per cent of the balance is added to your taxable income. The cost of capital improvements, not merely maintenance and upkeep, may be deducted from the profit so keep all your receipts. Profit on the sale of your home or principal residence is exempt from capital gain.
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